How to budget when your income is all bonus?

[Anonymous]

The typical, and best way, to budget, is not to spend money you have not made yet. The day after he gets his bonus, you set your budget for the year based on that amount. The budget should not spend all the money. It should obviously include savings for an emergency, retirement, and college funds. If it is an above average bonus, the budget should include extra savings for years in which the bonus will not be as good. If it is a below average year, you might consider using some of that savings.

[Anonymous]

This was our kind of our situation at DH’s previous job but we were not at a super high income level. His base was like 100k and he would get bonuses of around 80k. It was not a great situation because of the uncertainty. He also felt trapped in the job because after a certain point in the year, it feels like leaving money on the table to leave without the bonus. One year he got really burned and he now has a new more stable job.

[Anonymous]

We're in a similar position. My husband makes $300k base then a bonus that is targeted to be around 400k. Sometimes it's more, sometimes it's less. In the early years of this, he forced us to live very conservatively as if he wouldn't make any bonus. So we ended up saving a lot of money. We can be splurgier with money now that we have such a big cushion (around 6 million in liquid investments). That's what I would recommend doing.

[Anonymous]

Anonymous wrote:DH is very bonus heavy. He gets a multi million dollar bonus. We live off the base meaning we could live on just his regular everyday paycheck.

Bonus covers extras like vacations, cars and luxuries that we don’t have to have. We have had many years of bonuses that we saved.

DH has colleagues who depend on their bonus for private school tuition, monthly expenses, etc. their monthly burn rate seems higher than ours.

Is this what you would do if your income was not bonus heavy? I'm curious if you would still choose to live only off a fraction your income if it came monthly, rather than through bonus.

I sympathize with your DH's colleagues who depend on their bonus for private school, monthly expenses, etc. Forcing yourself to only spend the bonus, which is the majority of your income, on "vacations, cars and luxuries" rather than private school or monthly expenses, like housing, feels like the spending version of eating most of your calories from ice cream rather than whole foods. Spending $50K on private school tuition, or a better house in a better location, thus allowing you to have a shorter commute or a more walkable neighborhood, might be an overall better quality of life change than going on a few vacations a year or having a nicer car.

[Anonymous]

Anonymous wrote:OP here - thanks for everyone's replies! I knew there would be people on DCUM with a similar experience and wisdom to offer.

Our HHI is about 1M with bonus but about 350K without bonus, so it indeed is a cash flow problem. As you can imagine, a reasonable lifestyle at 350K is very different than a reasonable lifestyle at 1M. We want to optimize our lifestyle without feeling like we're "starving" throughout the year until bonus month comes. Or worse, spending away and there is no bonus month.

The expectation is that the HHI will grow a bit more before plateauing. Maybe 50% more. I work as well but I contribute very little to the overall HHI.

Currently, we are DINKS can definitely live on the 350K. However, we are planning to have children in the near future and will need to buy a house in this market, which will drastically increase our fixed costs and likely put us over the 350K mark. While we could save more of the bonus now to offset any worries, we are concerned that we would be wasting our "prime" DINK years so we're trying to see if any other solution is viable.

You guys sound terrible with money. What could you guys possibly be pissing $350k on, let alone $1m, without even a house to pay for?